Schwab Warns of Cryptocurrency Volatility Risk

Investors considering adding cryptocurrencies to their portfolios should exercise caution and carefully manage their exposure, according to a recent note from Charles Schwab.

The firm presents two main frameworks for allocating cryptocurrencies: a traditional approach based on expected returns, volatility, and correlation, as well as a risk budgeting approach that takes into account the overall portfolio risk an investor is willing to assign to crypto assets.

Schwab emphasizes the importance of considering factors such as investment horizon, loss tolerance, familiarity with digital assets, and desired exposure to specific tokens or broader crypto markets. The firm's main concern is the high volatility of cryptocurrencies, particularly Bitcoin and Ether, which can significantly impact portfolio behavior even at low weights.

Using data through October 31, 2025, Schwab notes that Bitcoin posted annualized volatility of 72.1% and a maximum drawdown of 73.4%, while Ether showed annualized volatility of 98.3% and a maximum drawdown of 87.8%. These figures are significantly higher than those of traditional assets such as US large-cap equities, core fixed income, or cash.

Under Schwab's traditional allocation framework, portfolio weights can swing dramatically depending on the investor's assumed return. For example, a 15% expected annual return for Bitcoin would imply a 1.0% allocation in a conservative portfolio, 6.6% in a moderate portfolio, and 8.8% in an aggressive portfolio.